Shrugging off the Black Swan

At the strike of the clock at 12 tonight, a year truly wilted by the freezing calamity of Covid-19 will be gone. A Black Swan year many will remember for the deaths, illnesses, hunger, economic hardship and mental stress beyond expression will end, ushering in a new beginning.

But the year that will dawn will, with more of a New Year wish than the possibility of a likelihood, be a bright one for many obvious reasons – the rollout of vaccines for one because it will ease the fear and animate people into actions once again.

When the virus struck hard upending lives the world over, everybody started talking about the future – how long the meltdown would last, whether the recovery would be V, W, U or K shaped. All the possibilities were up in the air and nobody knew which way life would turn.

After all, the pandemic had brought in unemployment and caused the biggest drop in GDP in history. But was not such an economic shock already on the way so far as the 21st century is concerned, since such shocks have stormed through every ten years?

But then the average recession has never lasted for more than a year since 1950. And this recession has an even better chance for recovery for many reasons.

The world's largest economy had pulled out all stops on the way to recovery by approving such a huge stimulus that WSJ columnist Morgan Housel predicts 2021 as "the best year for the economy in history."

The US economy has stayed resilient through the pandemic on the back of stimulus. Both consumer spending and personal incomes remained strong making the case for a sustainable US recovery.

And the second largest economy China has already thawed out of the frost and firing on all cylinders.

Its economy returned to expansion in the second quarter, and as Chinese consumers have once again unleashed their voracious appetite, its services sector, that was most affected by the pandemic lock downs, is showing strong growth.

In the emerging world, especially in Asia, one can see the steam once again building up. Korea and Taiwan are already well into their recoveries.

In Brazil and India, indicators are also showing an upward trend, some even surpassing pre-Covid numbers year-on-year.

And on the other shore, growth is expected to resume in Europe as economies reopen after the current flurry of lockdowns. Germany is reporting a strong rebound too and Boris Johnson of the UK finally managed to get the Brexit deal he wanted after much wrangling.

Across the Atlantic, the US economy and the people can have some respite as president Donald Trump signed the $900bn relief and spending package, averting an impending disaster to millions of Americans.

However, there are sobering concerns as well, of gloom and uncertainty. What if the vaccines don't hold in the long run, what if the new variants become more brutal than their predecessors, what if the vaccines become clawless?

And what if the US stimulus package dries up now, squeezing demand? What if the third wave becomes a fourth one and a fifth?

Whatever efficacy the vaccines will have, it will still leave a scar on the minds of the consumers, more in the West.

People will want to hold on to their money fearing an impending rainy day. They will want to hold on to their money like a lightning pole on top of their homes.

"The pace of recovery is likely to get worse before it gets better," Goldman economist David Mericle wrote in a report.

Morgan Stanley, however, keeps its prediction of a strong post-recovery growth in 2021 on course.

It predicts a V-shaped recovery for 2021 on the back of synchronised global growth, an emerging market rebound and the return of inflation.

After all, a unique thing is happening right now – the world economy is marching in lockstep, where both developed and emerging markets roared in the same year, the last such phenomenon taking place in 2017.

Because of all the predictions and interest generated around about 2021, our New Year Eve supplement is also dedicated to reflecting these possibilities with the caveat that some of them are mere ballpark estimates.

With the New Year's bell ringing, all we can hope is what Ben Bernanke, former chair of the US Federal Reserve, said, Covid-19 would be more like a "great snowstorm" than a replay of the Great Depression.

Now, could we get you to trade your worries for a smile?

So, Happy New Year once again!